IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this paper or follow this series

Nonlinear Price Adjustment and Transaction Costs Between Global Stock Markets

  • Jae-Young Kim
  • Woong Yong Park
Registered author(s):

    Depository receipts (DRs) are instruments issued in a foreign market representing ownership in the underlying securities on the home stock market. DRs are practically the same as the underlying stocks and we can analyze price adjustment between the underlying stocks and DRs under the law of one price. The price differential would not disappear immediately due to the lack of perfect arbitrage if there exist considerable transaction costs. However, if the price differential exceeds some threshold level, it would converge into the threshold band. We treat this nonlinear price adjustment with the threshold autoregression model. The analysis of American depository receipts (ADRs) for Korean companies shows that transaction costs are significantly low between Korean and US stock markets. Especially, transaction costs for blue chips popular in the markets are smaller and price adjustment speeds for them are faster than those for unpopular companies. We analyze transaction costs across countries using indices consisting of ADR prices of each country's companies. We find that transaction costs for most of the countries are low but some countries that restrict foreign investors' free access to domestic stock markets show relatively high transaction costs

    To our knowledge, this item is not available for download. To find whether it is available, there are three options:
    1. Check below under "Related research" whether another version of this item is available online.
    2. Check on the provider's web page whether it is in fact available.
    3. Perform a search for a similarly titled item that would be available.

    Paper provided by Econometric Society in its series Econometric Society 2004 Far Eastern Meetings with number 799.

    as
    in new window

    Length:
    Date of creation: 11 Aug 2004
    Date of revision:
    Handle: RePEc:ecm:feam04:799
    Contact details of provider: Phone: 1 212 998 3820
    Fax: 1 212 995 4487
    Web page: http://www.econometricsociety.org/pastmeetings.aspEmail:


    More information through EDIRC

    No references listed on IDEAS
    You can help add them by filling out this form.

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    When requesting a correction, please mention this item's handle: RePEc:ecm:feam04:799. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Christopher F. Baum)

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If references are entirely missing, you can add them using this form.

    If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.